Introduction
The rapid changes of markets, technology, and competition that constantly impact virtually every sector have forced companies to innovate with increasing speed, efficiency, and quality. The greater frequency of disruption and dislocation is shortening product lifecycles. Convergence of industries is driving new product opportunities at a never-before-seen fast pace.
All these factors have made product innovation one of the most powerful and crucial business activities, as it offers a fresh way to renew competitive advantage and rekindle growth in this challenging environment. Realizing the impact of new products on the revenue stream, firms spend significant amounts of money developing and commercializing “fresh”, “new and improved”, “competitively superior” products for the marketplace.
In the meantime, product innovation is one of the most complex and challenging business functions. New product innovation means more than a brilliant insight coming at the right place and at the right time. To eventually confer a reliable competitive advantage, product innovation must be systematically cultivated, sufficiently supported, and explicitly managed.
This article discusses new product innovation that is highly relevant in the current business environment, some of the circumstances in which product innovation has proved valuable, common pitfalls, and how companies can develop a competitive capability through product innovation.
What is new product innovation?
“New” products can be minor incremental refinements to existing products (cost reductions, feature enhancements), imitative products that are new to the company, or bold concepts that are new to the world. An innovated product should contain one or more of the following 6 attributes:
- Improvement and revision
- Line extension
- Cost reduction
- New category entry
- Repositioning
- New to the market
Product innovation is crucial today because there is a strong connection between successful product development and business valuation. Innovation drivers include performance gap, growth acceleration, external threat, and position strengthening or shifting. These drivers can be grouped into reactive and proactive, and financial and strategic, as shown in the following matrix.
Frost & Sullivan also finds that companies exceling in their industries attribute ~30% and above of their revenues to products developed in the most recent three years.
However, developing a steady stream of winning new products is not an easy task. Although estimates of new product and service failure rates vary, many companies find that more than half of new product development projects fail to become commercially successful. What differentiates the “successful” from the “failed” depends on how projects are chosen and defined from the beginning, how projects are executed, and how management views product innovation.
Common Pitfalls in Product Innovation
Planning Ahead
Excelling through product innovation is much like developing other competitive capabilities. It is important for organizations to understand and know how to manage end-to-end processes as well as key activities that are particularly important when striving for product innovation. As such, third-party support from growth partners and consultants such as Frost & Sullivan may become necessary for organizations to scale up innovation.
Market intelligence prior to product innovation is important to identify the capabilities of organizations. Next, with the understanding of market conditions, Mega Trends, and competitive capabilities, it is necessary to develop actionable strategic recommendations. The opportunity universe derived from rigorous analysis will be mapped to intended new innovation in products/services with clear value propositions. Typical analysis would include strategic prioritization that looks like the following diagram.
Together with a go-to-market strategy, the above steps are necessary to reveal what is currently working, what is not, and what might constitute a better opportunity. Frost & Sullivan believes that the following checklist is imperative for a successful product and service innovation.
- What are possible market scenarios in the sector that your organization is operating in, until 2020?
- What are the commercial implications of these scenarios on your current businesses?
- What are the opportunities and threats in these spaces in your current businesses?
- How is your organization positioned to take advantage of the opportunities and overcome the threats?
- What is the value potential and risk involved?
- Which set of decisions (product focus, partnering, functional allocations, geographical) holds the greatest potential to improve overall return for each business?
- How are they influenced by Mega Trends and Demand/Supply/Competition Dynamics?
- Which set of alternatives will create the most value and have the best chance of successfully addressing the challenges?
- What are the resource implications (scale and timing) of each alternative and its value potential and risk profile?
- What other actions will be required to pursue each alternative?
- Which is the most valuable combination of alternatives?
- Which alternatives will create the most value and have the best chance of achieving the objectives?
- How much risk is required by the aggressive alternatives?
- What allocation of resources is required to pursue the chosen corporate portfolio?
- What will total capital investment be?
- What organizational changes and change programs will be required for effective implementation?
